The US OTC market: The ins and outs of pink sheets

If you’ve read about US stock and shares, you might have come across the term ‘pink sheets’.

So what are pink sheets? How do they work? And should you consider investing in pink sheets?

Read on to find out…

What are pink sheets?

In the US, there is an over the counter (OTC) market for stocks. These stocks don’t trade through a stock exchange. Instead market makers create a market for them to trade.

These stocks are known as pink sheets.

The National Quotation Bureau compiles a daily publication of the share prices for these OTC stocks. This publication was printed on pink paper and this is where the name pink sheets comes from, says Investopedia.

As the US Securities and Exchange Commission (SEC) points out, these companies don’t have any listing requirements, unlike companies that list on stock markets.

For a company to list on the Johannesburg Stock Exchange and other stock markets around the world, there are arduous listing requirements. OTC stocks don’t have these requirements.

Should you invest in pink sheets?

This means investing in these pink sheets can be risky business as it can be very difficult to “find current, reliable information about” these OTC stocks, warns the SEC. This makes these stocks very risky to investors.

You can find many penny stocks in pink sheets and there are opportunities to make money, but this comes with a hefty heap of risk.

As a South African investor looking to invest in companies offshore, and particularly in the US, it’s best to avoid pink sheets due to the lack of regulation with these stocks.

Stick to stocks on the main stock exchanges. This way you’ll know that the companies you invest in have to follow strict regulations and practices to retain their listed status.